Governor Dave Freudenthal, Part 1

(western instrumental music) - Dave Freudenthal was the last Democrat to be elected governor of Wyoming, serving two terms in this century.

Now he's added author to his list of life achievements.

We'll talk to Governor Dave Freudenthal.

I'm Steve Peck of Wyoming PBS.

This is "Wyoming Chronicle."

(western instrumental music) - [Announcer] Funding for this program is made possible in part by the Wyoming Humanities Council, helping Wyoming take a closer look at life through the humanities.

thinkwy.org and by the members of the Wyoming PBS Foundation.

Thank you for your support.

- I'm Steve Peck of Wyoming PBS.

Welcome to "Wyoming Chronicle."

I'm very pleased today to be joined by the former two-term governor of Wyoming, Dave Freundenthal.

Governor, thanks for being with us.

Happy to have you here.

- Thank you for including me.

- You are the author of a new book, "Wyoming: The Paradox of Plenty, the Allure and Risk of a Mineral Economy."

You've had a lot of things in your life.

You were US attorney, worked in governor's administration, two-term governor and attorney in private practice.

Now an author.

So three horned question, why a book?

Why now?

why this topic?

- As I say in the book, it really started during one of those pandemic discussions, you know inside your pod where a friend of mine, Butch, a businessman here in town, got to talking about how did we get to be so dependent on minerals?

And I, of course said, well, it was the severance tax in 1969.

And then as most people had, we had a lot of time to think during COVID.

- [Steve] Sure did.

- And I thought, you know, that's a pretty flip answer.

So I thought, I'm gonna figure this out.

- You've never written a book before, is that right?

- That's correct.

- I, for one hope, you might have your anecdotal memoir in you at some point still, but that's for you to decide.

- A lot of stories are best left untold.

- Okay.

What was your writing process like?

How did you go about it?

- You know, lawyers, we write a lot.

- [Steve] Yeah.

- But this is a different kind.

What I had a lot of fun with was the research, tracking down the data and just started beginning to understand how we commenced in 1900 to destroy the basic founding father's premise about how we would be governed.

The hard part then was to decide, yeah, I think I'll write this up.

So then you do that, then you send it off to a publisher.

And I chose to self-publish with a group in Wyoming 'cause I wanted to do it in Wyoming.

And then the editor starts saying, so what's your source for that?

And I'd say, well, I was governor.

I can.

No, no, no.

So, that's why there's so many footnotes and stuff.

- [Steve] Yeah.

- It was because of COVID.

You know, we weren't going out a lot.

So you had your weekends, you had your evenings.

I was still practicing law, but it wasn't as busy.

And so, you had time to do the research and to ruminate and to think great thoughts.

On the other hand, not so many great thoughts, but the point is, it's a lot of work.

But at the end of the day, I'm glad I did it.

- And you didn't necessarily say, today I'm writing 500 words or?

- No.

- Two hours or?

- No.

- It was as you were able to as you felt the, you were moved by the mood.

Type?

You write this way, do you dictate?

- No, I type.

- You type.

- You know, as I was doing that I wish I was far better with merge and purge and insert and all of that stuff.

But yeah, I compose at the computer.

- Lawyerly paragraphs.

You mentioned at some point that your editor helped you with that.

- Yeah, she a wonderful woman, but not always kind.

And I spent a lot of time researching, talking to people and I discovered that I was wrong.

It wasn't 1969, it was probably about 1900.

- So when people say, well we need to quit being this commodity economy and get back to the way it was before, it really was always this way.

- Always an commodity economy.

I mean, it was agriculture and coal early on.

Then it evolved to oil.

And then you had bentonite, uranium, some others, the iron mine up in Lander.

And then you had the coal boom and the coal was really interesting because it was a real mainstay for the economy until the railroad shifted in 1947 from coal to diesel.

And then it tanked.

And then come, you know, the late '60s and into the '70s and particularly in the mid '70s with the air oil embargo, the reemphasis on domestic energy sources and coal was a logical one.

Then the Clean Air Act comes along, and thanks to Al Simpson, we ended up with language that said you could meet the SO2 standards by switching to low sulfur coal.

And at that stage, Gillette took off.

- Yeah.

- Gillette took off.

- And interestingly enough, rail became hugely important again at that point.

- Absolutely, absolutely.

Not because we were fueling the rail, but because the rail was hauling our products.

- Yes.

You said in your high school graduation year, which was, - 1969.

- Okay, good, you said it, I didn't have to.

That was the year that the severance tax was passed.

- Yes.

- Severance tax is a term I think in Wyoming that many people have heard but I don't know how many people could actually define it.

What is it?

- Severance tax is a tax on the privilege of severing a mineral from its ground to state.

And the reason that happens that way particularly in a place like Wyoming where so many of the minerals are federal, you can't tax federal property.

So you can't tax federal minerals.

So you attach a privilege for separating the mineral because once it's separated, it becomes personal property and it's subject to tax.

Hence the word severance.

- And they, the producers probably didn't love that idea.

And still it's talked about often, but for the privilege.

And in this case as what you've described earlier, explains, illustrates as the '60s end and the '70s began the great privilege as it turned out of mining Wyoming coal was something they could live with.

How would you describe it as an idea at the time from what you learned in researching the book?

- Well, it turns out that it was actually discussed in the original constitutional convention as a special tax on coal.

And it was debated back and forth and it related to the same problem, which is that nobody could figure out how do you value coal lands for purpose of property tax?

It was not adopted.

Instead they adopted language that allowed the future legislators to tax minerals as they deemed appropriate.

So, then you go through and you hit the '20s, and I think that would've been Governor Ross and his group, they had a constitutional amendment to impose a severance tax.

The amendment failed even though it received more yes votes than no votes in the election.

- Because in Wyoming?

- Because in Wyoming a non-vote counts as a no vote.

And so, there were some other attempts later on through legislation and stuff, but it was '66, the election of Hathaway where the contest was really joined about do we need a severance tax?

- Now this is Governor Stan Hathaway you're talking about?

- Mm hmm.

- Two-term Republican elected in the mid '60s?

- Uh huh.

- Republican.

This is the severance tax says, has the word tax in it and it's a big tax proposal.

What did he see?

What did elected leaders at the time see at the time that made them think that this had to be done, ought to be done?

- Well the irony of it is, is that the tax issue was brought up by his Democratic opponent in '66.

And Hathaway just blasted it.

And then he had something called the industrial committee that ran ads against it.

And so he was elected on an anti-severance tax platform in 1966.

In 1969, hold up, let me back up 'cause it's even more ironic.

His opponent proposed a 3% severance tax, 1.5% in the permanent fund 1.5% for operating.

'69 Hathaway did the severance tax.

But you know, first of all, you can dispense with the mythology that the state was broke in '69.

I mean he, I've known Stan or knew Stan a long time and he'd talked about that and I'd say that wasn't true 'cause the data doesn't support that.

What really happened was he'd increased taxes on a variety of things in '67.

In '69 he had a clear sense that energy was gonna be a big deal that we needed to sort of get on it.

And so he had things he wanted to do.

He had what Larson called a very progressive vision of Wyoming.

- So forgive me again, Larson being T.A.

Larson who wrote the, - T.A.

Larson who wrote the history of Wyoming.

- Still considered the definitive history of Wyoming?

- Absolutely.

But the wonderful thing is that he decided, look let's do a severance tax.

He had campaigned against the severance tax.

So, he didn't call it that.

I think he called it a products tax or something like that.

But it was in effect a severance tax.

And then you that in '69 generated considerable revenue.

Leap forward to '74.

Then they adopted, the legislature adopted a permanent mineral trust fund.

And Stan and Governor Hathaway had been against that all along.

And then suddenly the headline in the "Casper Star" the day he gave a speech was that "Stan drops a bomb" because he flipped his position and supported it.

The backstory of that is that there were enough Republicans who wanted it and legislators as well as Democrats who wanted it that it was gonna pass.

Now I don't know if it would've survived had he vetoed it.

But he ended up at the end of his eight years having put in place exactly what he ran against his opponent at the end of 1966.

History's so wonderful in terms of the ironies.

- Yeah, and interesting how, I don't know if he took a lot of guff for that politically at the time or not.

Now of course the idea that you might actually change your position often is attacked that you're sold out, you flip-flopped.

But on the other hand, supposedly the reason you're attacking someone's position is because you want him to come over to yours.

Do you think he or the lawmakers in the late 60s had any idea what was going to happen with Wyoming minerals in terms of the revenue that this tax procedure and this permanent trust fund would amount to?

- Well, in his talk, Governor Hathaway said he hoped that by the end of that century, it had $2 billion in it.

But they did have a sense of what was transpiring.

There was a report called Cameron Engineers that came out that was funded by the old Natural Resources Board.

And it laid out this remarkable future, particularly built around coal because the notion was that you would have ten 1,000 megawatt power plants along with a bunch of coal gasification and coal liquefaction plants in Gillette.

And it was clear that the mineral storehouse that our forefathers talked about in the constitutional convention was real and markets were finally moving in our way.

And what I think they really get credit for is the kind of adult behavior that said, look we know where markets are going.

We know that Wyoming has something to offer and we're going to use that shift in the markets to build this state.

And I think they get credit for that.

- And we'll talk later about some criticisms.

I think it's safe to say you have from how that's developed over time.

But certainly at the beginning there's a lot to be said for what they did.

It was innovative, it showed foresight and certainly it was lucrative and it was accomplishing the things that they wanted to accomplish at the time.

- Yeah.

And where it got off the rails was once we had the money, we did away with the traditional property tax and the traditional tax base.

'Cause you have to remember, Wyoming was formulated on the idea that it would be property taxed both on personal and real property that would support all levels of government.

And interestingly enough, it also envisioned that counties would be more powerful than the state.

- [Steve] Interesting.

- And the two things that happened post severance tax was they started taking everything off the tax rolls.

I mean, between Hathaway and Herschler, and they're both dear wonderful people, they knew that people didn't wanna pay taxes.

And so, they made sure they didn't.

And it was all offloaded onto the minerals because what happened was, starting in 1900, we just eroded the tax base, but we could really accelerate it after the severance tax.

And the only thing that was valued at 100% was minerals.

And houses and stuff were down around 18%, 20%.

So the tax burden shifted.

- And now there's been a generation or two that's really never known any other way.

- Yeah, I mean in, you know the taxpayer's data shows pretty clearly that as individuals we pay about 20% of the cost of all the services we receive.

The rest of the remainder of it is paid up with federal money, mineral taxes, current mineral taxes as well as the revenue from the permanent mineral trust fund which is really mineral revenue just invested.

But the only reason they can have a we're never gonna tax policy is that we're still living off of that old revenue.

- I've likened it sometimes to a, I don't know, maybe a big chunk of ice that you have in your house and you're leaning against it to get cool and you're chipping it out to keep your drink cool.

But a lot of things can happen over time.

You've chipped off too much or it starts to melt.

It's just not as big as it was.

Or there's more people that are using it.

And a lot of things can happen with this, the commodities, the economy and we can all think of there's markets, there's depletion, there's management there's shifting political wins, there's more demand.

And the other risk, am I right in thinking, that this sole or such heavy reliance on it also tends to make us complacent, maybe a bit less ambitious, maybe a bit less expansive in our viewpoint of things so that even when maybe the recognition is that the time has come to do something different that, is it inertia that makes it harder to do?

- It is because we've become comfortable and as markets shift then it's shifting obviously it's harder for Wyoming now 'cause they're better Franklin created an entirely different landscape for oil and gas development.

The age of coal plants and the emergence from natural gas has made an entirely different landscape for coal.

And so what we didn't do historically is use any of the revenue that was excess revenue from the minerals to begin to build other kinds of economies.

I mean, if you look at the states that surround us, they invested heavily in their educational institutions, in innovation, their universities and stuff.

And those have become centers for their economy.

Here, we didn't feel the drive to support alternative economies because doing that was somehow viewed as a threat.

I remember when I came in, and I wanted to resurrect the tourism which was really advanced by Hansen and Hathaway that there was a lot of pushback saying, look tourists jobs don't pay enough.

We don't want that.

I mean, we got it done anyway.

But the the problem is that we haven't invested the money.

We're proud of how much we save.

And we say that you're doing that for future generations.

No, we're doing that for ourselves so that you and I don't have to pay taxes.

If you wanna do something for future generations, we ought to be investing that money in some form of alternative economy so that the future generations have a job that keeps 'em in Wyoming.

- This is something that you talk about forcefully, write about forcefully in the book.

I mean, people could say what do you mean we aren't investing?

We've, if it were my household and I invested in a 401K or a CD that gets this great level of return well I'd be proud of myself.

The business might feel the same way.

And people love to say, it's very easy to say, well think of it in terms of your own household or the government's a business.

That's all it is.

We ought to run it like a business.

But there's a big difference there.

The state doesn't retire one day and the state can't sell or go out of business.

And so you're talking about an investment that involves investing in people not just bank accounts.

- Right.

And you know, we're pretty good at investing in education.

We were able to get the Hathaway Scholarship because I believed in that because it's important that we get people educated.

I want 'em to have a good life.

I'd prefer it be in Wyoming.

But most of all, you want your children to have a good life.

- And we built dozens of schools in a short period of time.

- We built a slew of schools.

- Yeah.

- We enhanced the community college infrastructure, university infrastructure.

What I would say, the reason I don't like that comparison to the household budget is we're gonna die.

The state doesn't die and its population continues.

And when we are so focused on I don't wanna have to pay taxes, but I want a lot of services as opposed to maybe we need to figure out a way to bear part of that burden ourselves.

Use some of that excess money that would build an economy that would allow our children and grandchildren the choice to stay here.

- You've got children, where are they now?

- Greece, Kansas City, Seattle.

And one is here.

At least two of 'em.

Two more of 'em would be here if they could have a career.

I mean, they love the place, they love the outdoors and we'd love to have 'em here 'cause we got grandkids.

But to me, the the failing, and you see it now I mean, the legislature's bragging about how much money they saved.

And I think when they say, well, we're saving it for future generations, maybe what we oughta be doing is figuring out how to make sure future generations can be employed.

A job is a really good thing to have.

- It is.

My grandparents born around the turn of the century had six children.

Three of them lived in Wyoming as adults and only two of them long-term.

And they had, among them, 10 children.

Of the 10, the cousins, as I call us, three of us live in Wyoming.

And the youngest of us is 60 years old.

Among the cousins, there were 10 more children, zero living in Wyoming.

And these are people that Wyoming could use.

My son, my cousin's children, smart people, thinking people, idea people, contributing people, educated people, people with skills.

They're just not here.

And so of course it means, you know, my family is caput now in Wyoming essentially after one more generation.

See, that's the way it looks.

So, that's a sobering thought for individuals.

But of course when you apply it to tens of thousands of families around the state, it becomes something that you, I mean we all have heard about the brain drain.

You talk a lot about that in this book.

You think it's a calamity.

- I do.

I mean, Wyoming creates incredibly bright people but there's nothing for them to do here to exercise that intellect.

Or even, and I don't mean just that, I mean just to be really good welders.

The the issue is sort of illustrated by the numbers that came out this year.

This is the first year in 100 years that we had more deaths than births in Wyoming.

And that tells you that we are in fact the fifth or sixth fastest aging state.

And we continue to, in a relative sense, decline in population.

And it's not something that's new.

I mean, in the '90s Broder did a column about Wyoming in which he referred to us.

He was quoting people at a Wyoming conference that Wyoming was the donut hole in the prosperity of the Rockies.

- Again, I know who you're talking about.

This is David Broder, longtime columnist, - Yeah, yeah.

- With the "Washington Post" and he was noticing Wyoming from across the country.

- Right.

- [Steve] Yeah.

- And the thing that is interesting is that is we end up saying, well, we don't want growth.

We don't things to change.

We wanna be who we are.

We can have these values and still have a prosperous state that makes room for children or young adults to stay and to have a job or in order to move in.

States are like businesses.

You know, if you're not going up, you're probably going down, certainly in a relative sense.

I mean, the only thing that bailed us out of having to make these hard decisions was the COVID aid.

I mean, $14 billion in a state whose gross state products, $37 billion.

That's a lot of money - Because we got some influx from people leaving other states moved to Wyoming during the pandemic.

The population itself might have held its own into just a gross number.

That's not exactly a great way to plan though, is it?

Let's have another global pandemic so we can make it.

- Well, I'd prefer not.

- Yeah, and but it also could be the kind of thing that again maintains the complacency for just a bit longer.

- That and the funding that came with COVID.

- Sure.

- The spike in energy prices that came with the end of COVID and the war in Europe.

But if you look at the data largely it is older people who are moving in and they're moving in, they're making a killing selling their property somewhere else.

They're downsizing, by a lot of house.

And a lot of 'em aren't even the workforce.

- And they will need services.

- Yeah.

I mean, this is a great place to preserve wealth.

I mean, you get great services, no taxes and there's lots of space.

- Here's a hypothesis for you.

We would've been better off if the minerals hadn't boomed as quickly and as much as they did when the severance tax and the permanent trust fund were first established.

Because then we wouldn't have seen, it wouldn't have been like winning the lottery.

It would've been more like just a steady investment that we might make in a 401K or something.

And this sense of, my gosh, we've hit the jackpot where we've got it made might not have taken hold.

- Yeah.

- Yes, no, maybe?

- I'm not sure if I agree with that.

- Okay.

- I mean, admittedly it was an incredible boom.

I mean, in that 10-year period, the population in that sort of the '70s to '80s in that time period a little bit in the '60s, population grew more in that decade than it grew in the next four subsequent decades.

- [Steve] Wow.

- Right up to 2020.

I think that it was more the decision to not retain that sort of cowboy notion that we're gonna pay for part of our own, we're gonna be part of the solution.

And so yeah, there was a lot of money and we did an incredible amount of tax relief.

I mean, we got rid of the tax on cattle.

We got rid of inventory tax, we got rid of.

And so you end up, the decision not to use part of that to begin to understand that markets change and demand changes.

And what was interesting to me in reading and going back all the way to the constitutional day was that people knew it.

They knew that we're subject to markets and that commodities are commodities.

And yet when we had, it sort of didn't stick that, you know, it's like if a business has a really great year, it usually goes out and says, all right, we need new equipment.

We need to be, maybe we ought to look at some new lines or we need to get some new intellectual property.

But instead, we said, I think we're just gonna cut all of our taxes.

And that's what we did.

(upbeat instrumental music) - [Announcer] Funding for this program is made possible in part by the Wyoming Humanities Council helping Wyoming take a closer look at life through the humanities, thinkwy.org and by the members of the Wyoming PBS Foundation.

Thank you for your support.